1990 (9) TMI 266 - HC - Companies Law

Circumstances in which a company may be wound up, Winding up Company when deemed unable to pay its debts

Summary

Issues Involved:
1. Non-payment of debts by Jayant Vitamins Ltd.
2. Allegations of fraud and illegal profits by petitioners in collusion with a former vice-president.
3. Financial stability of Jayant Vitamins Ltd.
4. Interests of the company's workers and employees.

Issue-wise Detailed Analysis:

1. Non-payment of Debts by Jayant Vitamins Ltd.:
The petitioners, various firms and individuals, filed petitions for the winding up of Jayant Vitamins Ltd. under sections 433 and 439 of the Companies Act, citing non-payment of debts. The petitioners supplied goods and services to the company, and despite statutory notices, the company failed to pay the outstanding amounts. The petitioners argued that the company was unable to meet its financial obligations, indicating insolvency.

2. Allegations of Fraud and Illegal Profits:
Jayant Vitamins Ltd. countered the petitions by alleging that the petitioners, in collusion with the former vice-president R.P. Sinha, engaged in fraudulent activities, resulting in illegal profits. The company claimed that Sinha misused his position to benefit his associates, including the petitioners, leading to overbilling and inflated rates. The company initiated criminal proceedings against Sinha and demanded the return of the alleged illegal gains from the petitioners.

3. Financial Stability of Jayant Vitamins Ltd.:
The company argued that it was financially stable, with a turnover of Rs. 36.50 crores and a net profit of Rs. 2.68 crores for the year ending June 30, 1989. The company highlighted its ongoing modernization and expansion programs, supported by financial institutions and sanctioned by the Government of India. The company claimed that its share price had increased, and it was regularly paying other creditors, indicating a sound financial position.

4. Interests of the Company's Workers and Employees:
The workers' union and employees' association of Jayant Vitamins Ltd. intervened, opposing the winding-up petitions. They argued that the company employed about 700 people and was financially stable. They supported the company's claim that the petitions were motivated by the petitioners' collusion with Sinha to harm the company.

Judgment:
The court examined the documents and arguments presented by both parties. It noted that the petitioners had to establish that the debt was clear, valid, and undisputed. However, the court found that the company's counterclaims of fraud and illegal profits were substantial and bona fide, supported by detailed accounts and ongoing criminal proceedings against Sinha. The court also considered the company's financial stability and the interests of its workers, who opposed the winding-up petitions.

The court concluded that the disputes raised by the company were not frivolous or baseless and required detailed examination by a competent civil court. Given the company's financial stability and the opposition from its workers, the court deemed it unjust and inequitable to order the winding up of Jayant Vitamins Ltd. Consequently, the petitions for winding up were dismissed, with the parties advised to pursue their claims in civil court.